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Information Technology and Management 3, 137–160, 2002 2002 Kluwer Academic Publishers. Manufactured in The Netherlands. Activity Based Costing for Component-Based Software Development ROBERT G. FICHMAN [email protected] Boston College, Wallace E. Carroll School of Management, 452B Fulton Hall, 140 Commonwealth Ave. Chestnut Hill, MA 02467-3808, USA CHRIS F. KEMERER [email protected] University of Pittsburgh, 278a Mervis Hall, Pittsburgh, PA 15260, USA Abstract. Component-based software development is a promising set of technologies designed to move software creation from its current, labor-intensive, craft-like approach to a more modern, reuse-centered style. However, a lesson learned from previous radical software process innovations is that a strong tech- nology alone is generally insufficient for successful adoption. In order for gains to be realized from such technologies the management practices surrounding the implementation of the new technology must also change. It is with this view that we propose the adoption of a complementary management approach called activity based costing (ABC) to allow organizations to properly account for and recognize the gains from a component-based approach. ABC enables a management environment where appropriate incentives are created for the development and reuse of software components. Data from a large software vendor who has experience with ABC in a traditional software development environment are presented, along with a chart of accounts for a modern, component-based model. Keywords: activity based costing, ABC, activity based management, ABM, component-based software development, object orientation, objects, expert services, software factory 1. Introduction The nature of software development is undergoing a dramatic change, one that strikes at the core of how the industry will build software systems in the coming decade. Tradi- tionally, large systems have been custom-built, using a “waterfall” approach to develop- ment. Under this approach, a project begins with a requirements or needs analysis, then proceeds linearly through stages of design, coding, testing, documentation, training and implementation. This custom-crafted approach to software is very expensive, as each project devel- ops a custom product. This, despite the fact that many applications contain numerous opportunities to rely on work products created for previous systems, including not only program code, but analysis and design artifacts as well. While this issue has been widely recognized, until recently modern software technologies made re-use possible on only an ad hoc or local basis. Large-scale component reuse was typically not accomplished. In response to this, a new approach has been proposed for the development of these systems. Using object-oriented or other modern development tools many observers have
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138 FICHMAN AND KEMERER proposed what amounts to a manufacturing process for software development [5,6]. This enhanced delivery capability should simultaneously result in cost savings and a higher level of quality, as this approach allows for the reuse of proven components [21].
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